Geared to a Main Street audience, this e-newsletter will provide a sampling of the latest speeches, research, podcasts, videos, lesson plans and much more. Sign up now to have this emailed to you monthly at no charge.

The Econ Lowdown e-newsletter is the most convenient way for economics and personal finance teachers to stay up-to-date on the latest videos, podcasts, curriculum, classroom activities and events from the St. Louis Fed.

The Changing Role of Community Colleges

Community colleges play a significant role in U.S. higher education. They enroll almost half of all U.S. undergraduate students and are essential for work force training and retraining. Earlier this year, President Barack Obama announced the American Graduation Initiative, a 10-year, $12 billion plan to invest in community colleges, which underscores the importance of the community college system for the American economy. As more people turn to community colleges for their educational needs during the current economic downturn, it is important to have an informative picture of community college students, their goals, educational choices and outcomes.

Students relax in the plaza on the Forest Park campus of St. Louis Community College.

A recent Federal Reserve Bank of St. Louis Community Development research report compares community colleges to traditional, four-year colleges—the advantages, the types of students, the economic returns and the students’ educational objectives.[1] The report also examines whether a community college education affects a person’s chances of obtaining a more advanced degree and whether students who receive an associate degree before obtaining a bachelor’s degree have different educational and labor market outcomes than their counterparts who do not have an associate degree.

Advantages of Community Colleges

Compared to a traditional four-year college, a community college has several important advantages for students: an open admission policy, making it easier to enroll regardless of their prior academic record; lower tuition and fees; savings on room and board; and a more flexible curriculum and class schedule.

Who Are Community College Students?

The population of community college students is diverse.[2] They are 60 percent white, 15 percent black and 14 percent Hispanic. Forty-one percent are males. In comparison, students attending four-year colleges are more likely to be white (70 percent) and male (45 percent).

Community colleges have more so-called nontraditional students than four-year colleges. Community college students are more likely to be older; and only 31 percent of them are enrolled full time, in part because they are more likely to also be working. Furthermore, 40.8 percent of community college students work full time, compared to 22.8 percent of their four-year college counterparts. More students in community colleges are first-generation college students.

Economic Payoffs

Most studies have found that students who attended community college, but did not complete a degree, earn 9 percent to 13 percent more than those with a high school diploma only.[3] There is also an increase in annual earnings of 5 percent to 8 percent associated with each year of education at a community college. This finding is particularly interesting because it is very similar to the return to a year of schooling in a four-year college.

Other researchers looked at retraining efforts by community colleges for older, high-tenure displaced workers.[4] Researchers found that one year of community college schooling increases the long-term earnings of displaced workers by about 9 percent for men and about 13 percent for women, compared to earnings for similar workers who did not attend community college. While there is a high return to technically oriented and math and science courses (about 14 percent for men and 29 percent for women), less technically oriented courses yield very low and possibly zero returns.

Another way to think about the value of a community college education is to ask how much more a person with an associate degree earns compared to someone who has only a high school diploma. Previous studies estimated the labor market return to an associate degree is about 16 percent to 27 percent.[5]

There are differences between demographic groups.[6]Women of all races have higher returns to an associate degree than men, mostly because women are more likely to major in nursing and related fields. There is also variation among racial groups in the return to an associate degree. Hourly wages of white men with an associate degree are 20 percent higher than wages of those who stopped their formal education at high school. The returns are much higher for black and Hispanic men—28 percent and 31 percent, respectively.

Also, the return to an associate degree is different across cities in the United States. White men with associate degrees are paid only 4 percent more than white high school graduates in Seattle, but as much as 35 percent more in Miami. For Hispanic men, the return to an associate degree is 17 percent in Washington, D.C., but more than twice as much, 48 percent, in Atlanta. Cross-city differentials for white women are not as big, but they are significant for minority women.

The table shows similar results for four large metropolitan areas in the Federal Reserve Bank of St. Louis’ district. White men with an associate degree earn on average 25 percent more in Little Rock, 20 percent more in Louisville, 17 percent more in Memphis and 12 percent more in St. Louis than similar men with only a high school diploma. For black men, returns to an associate degree are 19 percent in
Louisville, 25 percent in Memphis and 14 percent in St. Louis. Consistent with the rest of the country, women’s returns are higher than men’s. For example, black women in St. Louis with an associate degree earn 54 percent more than those with only a high school education.

Along Different Paths

Community college students have various educational goals. Although many plan to obtain an associate degree, some students just want to obtain certification in a certain field. Some intend to transfer to a four-year institution without any formal community college credentials.

Critics of community colleges point out that a significant proportion of students complete relatively few college credits. One study calculated that the majority of community college students complete one year or less and 35 percent complete one semester of study or less.[7] The study also showed that less than one-half of community college students complete any degrees.

One view is that easy access to community college sidetracks students from a four-year college. On the other hand, many nontraditional students would not have attended four-year colleges. For them, community colleges provide a chance for a post-secondary education they would not have had otherwise. Some studies argue that, even if attending a community college instead of a four-year college lowers educational attainment for some students, more students have access to higher education.

A study by the U.S. Department of Education found that about 90 percent of students entering community colleges intended to obtain a formal credential or to transfer to a four-year college. The report estimated that between 51 and 63 percent (depending on data used) of these students had fulfilled their expectations within six to eight years after initial enrollment. Overall, about 29 percent of community college students had transferred to four-year colleges.

From a Community College to a Bachelor’s Degree

It is important to evaluate how students who do transfer fare compared to their counterparts who started at four-year institutions. A recent study found that the rates of dropping out without a degree are much higher for those who start at community colleges.[8]

For example, community college students were 36 percent less likely to obtain a bachelor’s degree than similar students who started at four-year colleges. Even community college students who expressed an intention to obtain a four-year bachelor’s degree are significantly less likely to do so within nine years of starting their post-secondary studies. Only 26 percent of this group achieves their goal. To put it in perspective, 50 percent and 73 percent of those who start at nonselective and selective four-year institutions, respectively, obtain a bachelor’s degree.

The negative effect of starting post-secondary education at a community college remained, even after the authors adjusted for selection bias by controlling for students’ race, gender, age, ability (ACT scores) and family income. The authors of the study pointed out, however, that it is important to compare the negative effect they found to the difference in costs at two-year versus four-year institutions.

Educational Outcomes

Though many community college students do not go on to receive a bachelor’s degree or higher, some do. Among people who have at least a bachelor’s degree, 17 percent report having received an associate degree. People with an associate degree were significantly more likely to attend less selective (and perhaps less expensive) institutions for their bachelor’s studies. Students with an associate degree are also more likely to be enrolled in public colleges than those who do not have an associate degree and less likely to attend private colleges. People with an associate degree are less likely to major in sciences and engineering and are more likely to major in health, technology and management than their counterparts.

About 70 percent of those with both a bachelor’s degree and an associate degree do not continue their education beyond their first bachelor’s degree. This compares to less than 60 percent of their counterparts without an associate degree. Among those who received a master’s degree, only 14.3 percent have an associate degree. The proportion of people with an associate degree is even smaller among those with a doctorate or professional degree (5.8 and 9.5 percent, respectively).

Labor Market Outcomes

Regardless of the highest degree, people who started their post-secondary education with an associate degree earn less on average than those who started at a four-year college. The difference is particularly large for those who have a doctorate or a professional degree.

Careful statistical analysis shows that college graduates with a prior associate degree earn $2,426 less a year than those who do not have an associate degree. The earnings gap is smaller for bachelor’s and master’s degree holders ($2,269 and $2,117, respectively) and larger for people with doctorates and professional degrees ($6,884 and $7,768, respectively).

One could argue that community college students are more likely to have attended poor performance schools and fallen so far behind even before entering the post-secondary education system that this disadvantage affects their educational and labor market outcomes. Community colleges play an important role in serving disadvantaged populations. However, it is not reasonable to expect that they alone will be able to overturn apparent long-lasting cultural and educational negative effects that students from low-income families face.

Concluding Remarks

Attending a community college—even without completing a degree—results in economic payoffs and better job opportunities. Community colleges offer an opportunity to receive a post-secondary education to many students who would not have attended college otherwise.

There is a need to re-examine what is the best measure of community colleges’ performance. Given their changed purpose and higher emphasis on terminal certificate programs and work-force training, transfer rates to four-year colleges are not an adequate evaluation tool anymore.

Labor Market Returns to Associate Degree

(Relative to High School)

MEN

WOMEN

White

Black

White

Black

U.S.

0.2

0.28

0.34

0.35

Little Rock

0.25

0.45

Louisville

0.2

0.19

0.38

0.38

Memphis

0.17

0.25

0.26

0.36

St. Louis

0.12

0.14

0.27

0.54

Note: Author’s calculation. Data are from 2000 Public Use Micro Sample (PUMS) of the U.S. Census. Results are missing if data were insufficient because of small sample size. The numbers are percentage increases in wages.

Endnotes

Data in this section are from the U.S. Department of Education, National Center for Education Statistics, 2003-04 as presented in Horne, Laura; and Nevill, James. “Profile of Undergraduates in U.S. Postsecondary Education Institutions: 2003-04: With a Special Analysis of Community College Students (NCES 2006-184).” U.S. Department of Education. Washington, D.C., 2006.

For a survey of these studies and a more detailed description of data, see Kane, Thomas J.; and Rouse, Cecilia Elena. “The Community College: Educating Students at the Margin Between College and Work.” Journal of Economic Perspectives, Winter 1999, Vol. 13, No. 1, pp. 63-84.